Teji Mandi Newsletter: Limping back to recovery
Indian market defied the early morning indicators and staged a runaway rally during the day. Financials did most of the heavy lifting as Sensex closed 6.98% up while Nifty gained 516 points intraday. RIL (up 13.62%), HDFC BANK (up 12.41%) and Kotak Mahindra Bank (up 11.89%) were the top gainers while IndusInd Bank (down 3.33%), IOC (down 3.07%) and Coal India (down 2.82%) were the top losers of the day.
China begins to get on its feet; US announces $2tn economic package:
The market is also upbeat on account of positive global cues. China has begun to ease the COVID-19 lockdown on Hubei province, two months after it was first put in place. Activities in China are now steadily returning to normal. Many large economies have escalated containment measures and locked down cities. On the other side of the globe, the Senate and White House in the US have reached an agreement on a $2 trillion stimulus package for the US economy.
With Covid-19 infected cases on the rise, the Indian market is also expecting a package on similar lines from its government as India needs to step-up its policy response immediately. The key question is - Where will the money come from?
The RBI should not worry about stopping the depreciation of the Indian Rupee, as the currency still remains overvalued compared to other emerging market currencies.
The immediate expectation from the market is a stimulus package that brings a re-financing facility to businesses to avert defaults, bankruptcies or mass layoffs. Interest rates need to be slashed and support must be extended for small businesses and daily wage earners.Infosys vs TCS
Indian IT companies are expected to see a large earning cut from the US market as lockdowns in the US and disruption in supply chains puts pressure on the core business demand, leading to slow tech spending. Indian IT companies should also pass the Indian Rupee benefit to clients and take a hit on margins to gain market share.
Infosys is currently available at a 10% discount to TCS (TCS 17x vs Infosys 15x forward P/E). However TCS remains the best managed company in Indian IT services and is widely expected to grow faster than Infosys in the long term.
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